Securing a bright trading future

When it comes to trade, it doesn’t get much bigger than the flow between the EU and China. Last year, the trade in goods between the two economies was worth €467 billion, while trade in services was €54 billion. This makes the EU-China partnership one of the world’s biggest trade relationships, second only to the EU-US relationship.

However, there is potential for much more trade between the EU and China. The EU is responsible for approximately one-fifth of foreign direct investment (FDI) inflows into China, but this only represents 6% of total EU FDI outflows. It’s currently a strong trading relationship, but it could be much stronger.

For this reason, the EU and China are in ongoing negotiations for a comprehensive bilateral investment treaty (BIT), which aims to improve investment protection, market access and the overall investment climate on both sides. It is hoped that the BIT will boost confidence for both European and Chinese businesses looking to enter the opposite market.

In its latest policy paper on relations with the EU, issued in April 2014, the Chinese government stated that it views the EU as one of its most important trade and investment partners. China also hopes to start a joint feasibility study on a China-EU free trade agreement as soon as possible.

“We need to harmonise trade and economic policies,” says Emma Marcegaglia, the president of industry association Business Europe. “Chinese and European businesses should find all ways to put forward ideas. We need to remove barriers to trade and investment, and also rationally regulate the disputes and frictions in trade and investment.”

Sang Li, Chief Technology Officer at Chinese mobile phone giant Huawei, says now is the perfect time to build on the existing trading relationship. “There are opportunities to leverage the two sides to build a transparent relationship,” he says. “For the last 15 years, Huawei has gotten into the EU market. We have 1,200 R&D [staff] in 18 research sites in Europe. And we see great potential for the EU and China to leverage that growth.”

A closer trading partnership is likely to come in stages, and the first item on the agenda is a new customs agreement between the two countries. At June’s EU-China summit in Brussels (see article 3), the two sides reached a significant milestone in this process when they signed a joint statement on mutual recognition of authorised economic operators. The purpose of the new customs agreement, which will begin in the coming months, is to facilitate and accelerate trade and to combat illicit flows of goods.

The new customs agreement could result in lower costs, greater predictability and simplified procedures for businesses on both sides. Reduced bureaucracy and faster controls for customs clearance could also save time and money.

The EU and China are also working on standards convergence. Currently 100 European standards form the basis for Chinese standards, according to the European Commission. The Europe-China Standardisation Information Platform has served as the vehicle to give companies information about market access for products regulated by the EU and China.

In the longer term, the two sides are exploring the possibilities for a full EU-China free trade agreement. An investment agreement that would be the first stage for such a deal is being explored on a number of fronts. Right now the EU has more than 60 ongoing fields of talks with China at all levels. The European Commission, European Parliament, EEAS and other institutions are actively involved.

Attendees at a networking lunch at the EU-China Business Summit in June 2015

Relations with the United States will loom large over these negotiations. The US is the EU’s largest trading partner, followed by China. It is China’s second-largest partner, after the EU. The United States is also interested in a free-trade agreement with China, and there are ongoing negotiations for an EU-US free trade deal, the Transatlantic Trade And Investment Partnership (TTIP). In the race for free trade, there is an element of competition between these three powers.

In a way, the US and EU are competing for a better relationship with China – Jo Leinen MEP, chair of the delegation for relations with China

“In a way, the US and EU are competing for a better relationship with China,” says Jo Leinen, the chair of the European Parliament’s delegation for relations with China. “You can see that with the investment agreements both sides are negotiating. Behind an investment agreement there could loom a free trade agreement later on.

“I hope China at least has an equal interest in Europe as it has in the US,” he adds. “We are a bigger market than the US, we serve more people, and we are not a military power so there are a lot of opportunities for cooperation between Europe and China.”